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Analysis: E. Europe offers transit routes

By JOHN C.K. DALY, UPI International Correspondent   |   Oct. 12, 2007 at 5:49 PM
WASHINGTON, Oct. 12 (UPI) -- In the increasingly fractious scramble for the Caspian's burgeoning oil and natural gas energy reserves, resource-poor but strategically vital Eastern Europe is positioning itself to provide both consumer markets and transit routes to Russia for the former Soviet states bordering the world's largest inland sea.

It is a development where optimism may well collide with Russia's current near-monopoly of Caspian export routes -- so far, only Azerbaijan, with the Baku-Supsa and Baku-Tbilisi-Ceyhan oil export routes, has escaped Kremlin control. Kazakhstan is still wedded to using the Caspian Pipeline Consortium's pipeline, dominated by Russia, which terminates at Russia's Sea of Azov Novorossiysk port, while nearly all of Turkmenistan's natural gas exports are forced to rely on Russia's Soviet-era Transneft pipeline monopoly. If Eastern Europe succeeds in its ambitious plans, it will effectively offer an alternative to Russia's domination of energy exports to Eastern and Western Europe, a fact that Central European governments hope will resonate in Paris, Berlin and London.

During an energy summit that convened in the Lithuanian capital, Vilnius, Oct. 10, a provisional agreement was reached by energy and economics representatives from Azerbaijan, Georgia, Ukraine, Poland and Lithuania to cooperate on extending Ukraine's Odessa-Brody pipeline with a spur to reach Poland via Plock and Gdansk, the latter on the Baltic. The representatives initialed an accord creating the "Sarmatia" consortium, which is to construct the new network, tentatively scheduled to open in 2011.

At the end of the first day of the summit at a joint news conference with the presidents of Lithuania, Azerbaijan, Poland and Georgia, Ukrainian President Viktor Yushchenko was optimistic, telling journalists, "This is a historic step today, which means that a project for delivering Kazakh oil to Europe has moved from the political to the practical level."

Yushchenko was candid about Kiev's intentions, stating, "We have never hidden that the implementation of the project for delivering Caspian oil to the European Union is our strategic project," which is important "not only to our country, but is also strategic for Kazakhstan, Azerbaijan, Georgia, Lithuania, and many of our other partners."

Azerbaijani President Ilham Aliyev said the meeting was intended for "laying a solid groundwork for transporting energy resources through Georgia and Ukraine to European countries."

Both Lithuania and Georgia have been subjected over the years to disputes with Russia over the pricing of energy exports, and their presidents were strongly supportive of the project's potential for diversifying Caspian export routes. Lithuanian President Valdas Adamkus, whose country in August 2006 saw a cessation of Russian oil exports through its Baltic port of Butinge and Mazeikiu refinery, said, "This indicates the unity and commitment of the entire region for progress, self-determination and a guarantee for sovereignty."

Georgia already gets most of its oil from Azerbaijan rather than Russia, and Georgian President Mikhail Saakashvili, in a veiled swipe at Russia's attempt to use energy exports to retain geopolitical influence over the summit members, hailed the new agreement as a sign of "new strategic ties. This is a big change not only in the energy policy of Europe but I think also in wider geopolitics, in the wider configuration of the post-Soviet and post-communist space."

Polish President Lech Kaczynski sounded a more conciliatory note, even as he acknowledged that the project "has both an economic nature ... and a huge political impact," adding, "this agreement is not made against any other country."

Poland remains vulnerable to Russian export pressure but is potentially the biggest beneficiary of the Sarmatia project, as the projected pipeline extension would reach Plock, site of Poland's largest refinery before terminating at Poland's Baltic Sea port of Gdansk.

Behind the rhetoric, however, lie practical issues to be solved. The Odessa-Brody Ukrainian pipeline transports Russian oil from Ukraine's Odessa Black Sea port to Brody, near Ukraine's western border with Poland, leaving Kiev vulnerable in the interim to Russian economic pressure over oil exports.

A second potential snag is the fact the Sarmatia network plans to use Azeri oil but possibly include Kazakh exports as well. While Astana sent Energy Minister Sauat Mynbayev to the Vilnius discussions, it remains to be seen how far the government of Kazakh President Nursultan Nazarbayev is willing to annoy Russia and whether it will commit significant volumes of oil to the project. The history of the Odessa-Brody pipeline, completed in 2001, provides a cautionary tale. The Ukrainian government built the line without having firm commitments from anyone for exports, forcing a reluctant Kiev in 2004 to agree to transport Russian oil in the opposite direction, for export from Odessa rather than westward to Central European markets as originally envisaged.

Aliyev for his part has no doubts about the viability of the project, telling journalists, "Our current oil resources are 15 billion barrels and gas reserves are at 2 trillion cubic meters. This is sufficient for the next 150 years.

"Azerbaijan has become one of the world's major oil and gas exporters. The Caspian region is Europe's only energy supply alternative. The Caspian corridor is vital for the future."

Sweetening the pot, Aliyev offered to sign a long-term agreement between Azerbaijan and the European Union, but the reality is that it remains to be seen whether Azerbaijan can provide sufficient volumes of oil to sustain the project should Kazakhstan decline to participate in any meaningful manner.

A follow-up energy summit is to be held in Kiev in 2008; doubtless the participants will have a lot to discuss.

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(e-mail: energy@upi.com)

© 2007 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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